China Power Tariff Hike Unlikely To Push Up Aluminum Prices

China's decision to raise retail power prices by around 3% from Wednesday for non-residential users is unlikely to push up aluminum product prices in the domestic market although energy is a key input in the production of aluminum, accounting for about 40% of the production cost.

A majority of Chinese aluminum producers use captive power generated at their own facilities and won't feel the impact of the price hikes, analysts said Tuesday.

China Monday said it will raise retail power tariffs for non-household users in 15 provinces starting June 1, the first increase since 2009 as the country tackles its worst power shortage in seven years. Tariffs for industrial, commercial and agricultural will rise by an average CNY0.0167 a kilowatt-hour, the central government said in a report on its website.

The provinces affected by the tariff hikes - Shanxi, Qinghai, Gansu, Jiangxi, Hainan, Shaanxi, Shandong, Hunan, Chongqing, Anhui, Henan, Hubei, Sichuan, Hebei and Guizhou - together account for 63% of China's aluminum production.

"We have our own power plants, so coal prices matter to us more than power prices," said a manager from a Shandong-based aluminum producer which has four coal-fired power plants. "Most of the producers in Shandong province are self-sufficient in power."

About 64% of China's aluminum producers have self-generated power with only the rest buying power from the grid.

A combination of government policy, cost factors and the push for energy security have seen a gradual shift in the structure of the Chinese aluminum industry, with a growing poportion of the plants moving to captive power generation, Barclays Capital said in a report earlier this month.